Navigating US-China Financial Decoupling

Mr. Wei Hong: Regarding the industrial sectors of renewable energy, electric vehicles (EVs), semiconductors, and batteries. How do you foresee these industries evolving in the context of the ongoing US-China tensions? 

Prof. Zhiguo: I visited China this June and was pleasantly surprised by the advancements in the EV market. In Zhengzhou, it’s expected that most taxis are BYD, but what surprised me was in Beijing. I used an app to book a taxi and found myself in an EV with an impressive screen. However, I didn’t recognise the logo. When I asked the driver, he explained it was Yuoku, a state-owned brand from Beijing.  

What’s noteworthy is that the EV competition in China is no longer just dominated by well-known brands like BYD. State-owned companies are also entering the market. During discussions with policymakers, I learned that in China, half of all new cars are now electric. Beijing is ambitious, aiming to replace all cars with electric vehicles within five years. The biggest challenge from the US might be tariffs. Former President Trump proposed a 100% tariff, but economists suggested even 150% or 200% wouldn’t be enough to curb China’s EV growth. Beijing is determined to rely on its domestic market and is already exporting EV technology to Europe, where deals with major European companies are underway.  

While there is positive momentum, I have some concerns. I fear that our policymakers may focus too much on the optimistic side and overlook the bigger picture. There is a need for transparency in gathering accurate data to make informed decisions. 

Mr. Wei Hong: What are the opportunities and threats for Singapore businesses in this context? Additionally, which countries in Asia are likely to benefit the most from this decoupling? 

Prof. Zhiguo: About 70% of my wealthy friends are moving to the United States, while the other 30% are choosing Singapore. Singapore is an interesting country with effective policies, but its small size limits its ability to fully capitalise on the US-China decoupling. In my view, India should be the one to watch. 

I’m particularly impressed by the number of highly educated engineers in India. When it comes to coding, two countries stand out—China and India—where there is a massive pool of engineers who are happy to take on this work. This contrasts with the situation in the US, where such a workforce is harder to find. 

People often mention Vietnam as a beneficiary of the decoupling, but I see it differently. In a recent meeting with Vietnamese economists and experts at Tsinghua University, I learned that while Vietnam has a Communist Party, its land is privately owned. This sounds beneficial, but it severely hampers infrastructure development. Over the past 20 years, only 5-10% of GDP has been invested in infrastructure annually, making it difficult for Vietnam to take over China’s role in manufacturing. This is why much of the production still happens in China before being sent to Vietnam for final assembly and labelling. 

China, in contrast, built its infrastructure early on and capitalised on it. India needs to do the same, but it seems to lack the right attitude and system to achieve it. 

Mr. Wei Hong: What is the possible worst-case scenario for this decoupling? 

Prof. Zhiguo: Over the past five years, my outlook has become more pessimistic. Many say the worst-case scenario for this decoupling is war, but to be honest, I’m unsure what would happen in such a situation. Personally, I feel I would be most vulnerable, as I still hold a Chinese passport—what would I do in that case?  

From my perspective, a war seems almost impossible. There are reasons that lead me to believe this, but I also acknowledge the risks. For a top leader to initiate war, the stakes are incredibly high. 

Audience member: As of now, we’ve invested in the USA, and we prefer not to choose sides between the US and China. However, have you heard of any indications from the US that might eventually force Asian countries to pick a side between the two? If such a situation arises, what mechanisms could the US impose to compel Asian countries to make that choice? 

Prof. Zhiguo: I actually have a positive outlook on this issue. Many countries are navigating this situation strategically and benefiting from it. The US can't simply force countries to choose a side. When it comes down to it, they often need to negotiate or offer incentives rather than impose strict demands. 

There's a subtle difference between being forced and being encouraged to take a certain stance. This reflects the current geopolitical landscape. When I first visited the US, it felt like a unipolar world, where the US was the sole superpower after the Cold War. While Russia once played a role, it's clear that now China is the main counterpart to the US. 

Regardless of nationality, I believe that a balance of power is beneficial. It allows countries like Singapore and Korea, which have complex histories and conflicting interests, to assert their own positions. In today’s geopolitical climate, this balance enables countries to negotiate and protect their interests. So far, I haven’t seen the US force any country to make a hard choice. 

If a war were to break out, this positive dynamic might change, but I don't foresee that happening. I believe the balance of power leads to economic negotiations rather than conflict. This creates a world where nations can align their interests through diplomacy, which is far better than one where everyone is at odds with the US. 

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